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Morgan Stanley, Infracapital buy Veolia UK for £1.24bn

The team has picked up the UK's second-largest regulated water-only company, serving some 3.5m people. The sale attracted attention from AXA Private Equity, Goldman Sachs, USS and iCON Infrastructure, to name a few.

Morgan Stanley Infrastructure and Infracapital are the new owners of the UK water assets of French group Veolia Environnement, after laying down £1.24 billion (€1.55 billion; $1.92 billion) to scare away competition from a consortium of Goldman SachsCVC Capital Partners and Universities Superannuation Scheme (USS) and Japan's Marubeni Corporation. 
For that price tag, the winning team is buying a 90 percent stake in Veolia Water RegCo, the UK's second-largest regulated water-only utility, serving some 3.5 million people across the north-west of London and the south-east of England. Veolia's UK water business had a regulated asset base (RAB) of £948 million as at March 31, 2012, which means the winners are paying a roughly 30 percent premium to the RAB.
Veolia is retaining a 10 percent stake in the asset for at least five years, the company said, highlighting the sale will allow it to cut net debt by £1.16 billion. Chief executive Antoine Frerot called it a “first significant divestment […] in the right direction regarding the implementation of our strategic plan” to cut €5 billion of debt before the end of 2013.
The sales process, run by JP Morgan Chase and Deutsche Bank, attracted a lot of attention from the industry. In addition to the above-mentioned consortia, iCON Infrastructure, together with Canadian pension PSP Investissements, also showed interest in the business at an earlier stage.
AXA Private Equity was, at one point, part of a consortium with Infracapital and the South Korean National Pension Service, before it decided against submitting a binding bid and dropped out of the sales process. AXA followed in the footsteps of iCON and PSP, which were the first team to drop out.
For Infracapital, the acquisition also marks the maiden investment of its second infrastructure fund, which is said to have reached a first close recently. “We are extremely pleased to announce the acquisition of Veolia Water RegCo as our first investment for Infracapital Partners II,” Ed Clarke, director and co-founder of Infracapital, commented in a statement. 

Macquarie Capital, Messier Maris and Morgan Stanley advised the winning consortium.